Sunday, May 31, 2009
Gold To Stand Against Big Devaluations
threats of devaluation and harder times are to be considered seriously, big players have reasons to acquire more gold, Large gold holdings have a history of their own, China caught in a dollar trap, Russia in an oil trap, America in a debt trap
What we are about to tell you may be the most important information that we have imparted in almost 50 years. something very bad is looming – we don’t know the exact configuration yet, but we think the key is the collapse of the dollar, which will send gold and silver to considerably higher prices. These events could unfold over the next 2 to 4 months. There could be devaluation and default of the US dollar and American debt. You must have at least a 6-month supply of freeze dried and dehydrated foods, a water filer for brackish water, and assault weapons with plenty of ammo and clips. You should put as much of your wealth as you can in gold and silver coins and shares. You should not own any stocks in the stock market except gold and silver shares, you should not own bonds the exception being Canadian government securities, you should not own CDs, cash value life insurance policies and annuities. (more)
What we are about to tell you may be the most important information that we have imparted in almost 50 years. something very bad is looming – we don’t know the exact configuration yet, but we think the key is the collapse of the dollar, which will send gold and silver to considerably higher prices. These events could unfold over the next 2 to 4 months. There could be devaluation and default of the US dollar and American debt. You must have at least a 6-month supply of freeze dried and dehydrated foods, a water filer for brackish water, and assault weapons with plenty of ammo and clips. You should put as much of your wealth as you can in gold and silver coins and shares. You should not own any stocks in the stock market except gold and silver shares, you should not own bonds the exception being Canadian government securities, you should not own CDs, cash value life insurance policies and annuities. (more)
The Great Silver Mystery
Let me start off by saying that what I am going to postulate
should not in any way be considered fact...because I am not in possession of
proof. I am merely postulating on where all the mystery silver comes from to
be sold on the physical silver market. Since the early 2000's almost every
serious silver analyst has been pounding the table that there is no above
ground silver available and it is the "buy of a lifetime"".But at the same time, silver prices never seem to live up to their expectation. Of course, anyone with an ounce of common sense can see that the COMEX and LME silver markets are rigged by a powerful cabal of bankers (and others) that seem to be above the law (or more likely, in collusion with the law), but at the end of the day physical silver must be delivered for industrial applications and investors taking possession. So where does it all come from? ....I think I may have stumbled upon the answer! (more)
should not in any way be considered fact...because I am not in possession of
proof. I am merely postulating on where all the mystery silver comes from to
be sold on the physical silver market. Since the early 2000's almost every
serious silver analyst has been pounding the table that there is no above
ground silver available and it is the "buy of a lifetime"".But at the same time, silver prices never seem to live up to their expectation. Of course, anyone with an ounce of common sense can see that the COMEX and LME silver markets are rigged by a powerful cabal of bankers (and others) that seem to be above the law (or more likely, in collusion with the law), but at the end of the day physical silver must be delivered for industrial applications and investors taking possession. So where does it all come from? ....I think I may have stumbled upon the answer! (more)
Mortgage Meltdown, More Pain To Come
T2 Partners has a phenomenal series of charts on the housing crisis stating Why There Is More Pain To Come.
The report is 69 pages almost all of them loaded with charts. I took a liberal selection below, adding plenty of comments, but please take a look at the original article for many additional charts. All charts below are from the article. Click on any chart to see a sharper image. Quotes from the article in italics. My comments are in plain text. (more)
Commercial Real Estate Defaults Coming
Commercial real estate may soon bulldoze the green shoots.
A coming wave of defaults on loans to developers of condominiums, office buildings and malls could do significant damage to the already deflating economy. That was the overwhelming concern expressed at a public hearing of the Congressional Oversight Panel (COP) on Thursday that focused on corporate and commercial real estate lending.
The COP was set up last fall as part of legislation that gave the Treasury Department permission to spend $700 billion to rescue the nation's ailing financial system. The panel, which is headed by Harvard Law professor Elizabeth Warren, has no legislative or official regulatory powers. It is supposed to monitor the Treasury's spending and report back to Congress as to whether it is being effective in boosting lending and shoring up the financial sector. (more)
A coming wave of defaults on loans to developers of condominiums, office buildings and malls could do significant damage to the already deflating economy. That was the overwhelming concern expressed at a public hearing of the Congressional Oversight Panel (COP) on Thursday that focused on corporate and commercial real estate lending.
The COP was set up last fall as part of legislation that gave the Treasury Department permission to spend $700 billion to rescue the nation's ailing financial system. The panel, which is headed by Harvard Law professor Elizabeth Warren, has no legislative or official regulatory powers. It is supposed to monitor the Treasury's spending and report back to Congress as to whether it is being effective in boosting lending and shoring up the financial sector. (more)
Friday, May 29, 2009
Energy supply crunch brewing
Forget low oil prices. The worry of the moment is a spike in oil prices and how long it will take before a supply crunch sends prices soaring.
And if one subscribes to the views of former CIBC World Markets economist Jeff Rubin and University of California, San Diego economics professor James Hamilton, a spike in prices could send the world tumbling back into recessionary territory, just as it is about to climb out of it.
Both Rubin and Hamilton hold the view that the current recession is the result of a spike in oil prices and not the collapse in the U. S. housing market.
So what's the deal with the about-face in sentiment on oil prices? (more)
Markets set to plunge again, says Jim Rogers
Published: Wed May 27, 2009 6:54 pm
INTERNATIONAL. Investment gurus Jim Rogers and Marc Faber agree on one thing. They see a major correction looming in equity markets with a currency effect for the US, since the current rally has been mostly based on printed money, a kind of 'reverse Robin Hood policy' of governments, to steal from the peasants to give to the rich.
As with Faber, Rogers is mostly to be seen being interviewed on CNBC Asia or Europe, since their views are to put it mildly, somewhat negative on the US Dollar and the prospects for green shoots in the US economy.
Legendary investor Jim Rogers told CNBC on Wednesday he is not short or hedged in anything at the moment, but buying Japanese Yen. The next crisis in his eyes is in currencies which makes sense since sovereign states have taken much of the bad debt from the banks and piled them onto their own balance sheets.
The stock market may hit new lows this year or the next as the current rally has been largely caused by the money printed by central banks and fundamental problems remain unsolved, he said. (more)
INTERNATIONAL. Investment gurus Jim Rogers and Marc Faber agree on one thing. They see a major correction looming in equity markets with a currency effect for the US, since the current rally has been mostly based on printed money, a kind of 'reverse Robin Hood policy' of governments, to steal from the peasants to give to the rich.
As with Faber, Rogers is mostly to be seen being interviewed on CNBC Asia or Europe, since their views are to put it mildly, somewhat negative on the US Dollar and the prospects for green shoots in the US economy.
Legendary investor Jim Rogers told CNBC on Wednesday he is not short or hedged in anything at the moment, but buying Japanese Yen. The next crisis in his eyes is in currencies which makes sense since sovereign states have taken much of the bad debt from the banks and piled them onto their own balance sheets.
The stock market may hit new lows this year or the next as the current rally has been largely caused by the money printed by central banks and fundamental problems remain unsolved, he said. (more)
McAlvany Weekly Report
Meltdown: An Interview With Thomas Woods Jr.Thomas E. Woods, Jr., senior fellow in history at the Mises Institute, holds a bachelor’s degree in history from Harvard and his master’s, M.Phil., and Ph.D. from Columbia University. Woods has appeared on Fox News Channel’s Hannity & Colmes, Fox & Friends, and The Big Story with John Gibson, as well as on MSNBC’s Scarborough Country and C-Span2’s Book TV. His latest book includes the New York Times bestseller Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Mr. Wood’s latest book can be found at: www.mcalvany.com/books.php 
Why Is China Buying Gold?
Eric Fry, reporting from Laguna Beach, California…
Hey Rude readers, can you see the chart below? The Chinese can see it to…and that may be a big part of the reason why the gold price keeps marching steadily higher.
The Chinese can see that U.S. dollars – like all the rest of the world’s paper currencies – tend to lose value over time…lots of value. The Chinese can also see that the current crop of American leaders is implementing policies that will likely accelerate the dollar’s decline.
American politicians, Federal Reserve appointees and Treasury officials are united in their efforts to counteract the forces of recession. Their weapon of choice: dollar debasement. From behind the ramparts of New Era acronyms like “TARP” and New Era euphemisms like “quantitative easing,” the Fed and its comrades-in-arms hurl trillions of dollars of currency and credit toward the enemy…hoping to scare it into retreat.
So far, the enemy seems unfazed. Recession continues to advance, even though the battlefield is littered with Private “Benjamins.” Therein lies the problem for the U.S. economy. Even if the Fed manages to repel the forces of recession for a while, the cost to our beloved dollar could be incalculable. In other words, we might win this particular battle, but we are likely to lose the war. The more dollars the Fed catapults into the banking system, the greater the risk that hyper-inflation will ensue.
Several high-ranking Chinese officials fear such an outcome…and they are not afraid to say so. In mid-February, Zhou Xiaochuan, the Governor of China’s central bank wondered aloud, “Is it time for China to consider using its reserves somewhere else, instead of concentrating too much on the United States?”
One month later, Premier Wen Jiabao remarked, “I am a little bit worried. I request the US to maintain its good credit, to honor its promise and to guarantee the safety of China’s assets.” A few days prior to this statement, Luo Ping of China’s Banking Regulatory Commission offered a less delicate version of the premier’s remark: “Once you start issuing $1 to $2 trillion [of Treasury bonds], we know that the dollar is going to depreciate. So we hate you guys, but there is nothing much we can do.”
Nothing much, perhaps…but something, nevertheless. The Chinese can diversify a portion of their reserves into gold. And that’s exactly what they appear to be doing. Even a modest re-allocation to gold could produce a meaningful rise in the gold price…and that’s without including growing demand from the rest of the world’s dollar-phobes.
Thursday, May 28, 2009
Sudden but Long Expected Change
By: Boris Sobolev, Resource Stock Guide
May 28, 2009
From our perspective, the main event of the month was a simultaneous selloff in the US dollar and the US bond market. USD fell by 5.6% (3.6% in the past week) and the 10-year yield rose by 10.4% since May 1.
The catalyst for such a sharp fall was the downgrade by the S&P rating agency of the UK government debt. This development led to a well justified comment by Bill Gross of Pimco that the US debt awaits the same fate.
The S&P economists see major escalations of government debts around the world in the next few years. At last they’ve seen the writing on the wall! US government debt to GDP ratio will rise from 44% in 2008 to 77% in 2013 according the analysis. Growth in government debts will occur in all of the developed world, but the fastest rate of growth will be experienced by the US and the UK. (more)
Prepare To Get Buried
Clive Maund
Fundamentally the rally in the broad stockmarket from early in March is viewed as being the result of a combination of media hype, wishful thinking and short covering, but there may be more to it than that - it would appear that a sizeable proportion of the TARP (Troubled Asset Relief Program) funds not thus far deployed have been used to drive up the stockmarkets in order to create a positive environment for the banks to issue secondary shares and thus raise equity. While this is perfectly understandable, it also means that once the banks have finished selling this stock to the public, or the market is simply exhausted by being soaked in this way, it is likely to go into reverse in a big way. (more)
Invest in Moly?
For the first time in years, the Chinese have become net importers of molybdenum,” reports Chris Mayer in his latest Special Situations alert. Moly, if you are unfamiliar, is a lynchpin of the energy complex. It’s a vital resource for oil pipelines, nuclear reactors and fuel refiners. Above all, moly is used to strengthen steel.
“China recently became a net importer of moly because its mines are too costly to run profitably at current low moly prices. Various estimates put about half of China's moly production at costs north of $13 a pound. The current moly price is only $8 and change -- down from $30-plus last year, mainly as energy markets softened. So there have been a lot of shutdowns in China, as Chinese producers can't make any money.
“China recently became a net importer of moly because its mines are too costly to run profitably at current low moly prices. Various estimates put about half of China's moly production at costs north of $13 a pound. The current moly price is only $8 and change -- down from $30-plus last year, mainly as energy markets softened. So there have been a lot of shutdowns in China, as Chinese producers can't make any money.
“China is the world's largest producer of steel, by far. No one's even close. China produces nearly 40% of the world's steel. It makes twice as much steel as the No. 2 guy, the European Union. Much of that steel will need moly.
“Therefore, any rebound in moly is bound up in the China growth story. In fact, over the past five years, Chinese demand for moly has grown 27% annually, compared with only 4% globally. China alone now makes up 25% of the global demand for moly -- about 110 million pounds.”
Thus, if you believe in the China boom, concludes Chris, “molybdenum is a winner, albeit one that is temporarily resting, like a basketball player taking a breather before he steps back on the court. All the elements that pushed moly to $30-plus per pound in the first place are still in place for yet another run at three sawbucks or better. Molybdenum is cheap at $8 per pound.”
U.S. Inflation to Approach Zimbabwe Level, Faber Says
By Chen Shiyin and Bernard Lo
May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.
Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.
“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.” (more)
May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.
Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.
“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.” (more)
What Moves Up 3 Times Faster Than Gold?
The dollar is out. The U.S. dollar index has fallen 5% last week.
Treasury bonds are quickly falling out of favor. The yield on 10-year Treasury bonds has climbed from 2.5% to almost 3.5% since March signaling inflation fears and an unwillingness to fund ballooning government borrowing.
Gold is hot. Gold prices are back on the rise and gold stocks have done even better.
Is this a sign of things to come?
Well, if you take a look at the mainstream headlines, you’d think so.
An editorial headline on Bloomberg proclaims, “Dollar is dirt, Treasuries are toast, and AAA is gone.”
Even CBS News is warning, “Inflation could be coming to a U.S. dollar near you.”
To me, it seems just like a typical overreaction in the short-term.
Gold and Gold Stocks
Gold and gold stocks have two periods of seasonal strength: Middle of July to the end of September and middle of November to the end of January. The seasonal trade is lining up nicely this year,
Fundamentals currently are mixed. Gold in U.S. Dollars are tracking slightly lower in the second quarter relative to the same period last year. That means earnings and cash flow by gold companies generally will be flat at best in the second quarter (more)
Hitmen Contracts to Bust COMEX
Major dislocations are coming. Tremendous disruptions are coming. Price discontinuities are coming. Price chart patterns might be rendered useless soon. Last week, the case for a grand Paradigm Shift was made, covering many elements in order to paint a mosaic. Taken in isolation, any one point is important in its own right, but not enough to convince of a structural change. Taken in entirety, the many points create a full picture that is more easily recognized. The ruinous events of the Wall Street banks last September and October surely served as an extreme event loaded with profound disruption. The Chinese have proceeded with a transition to yuan-based domestic banking, with an installation of yuan swap facilities around the world, with an ASEAN regional fund again supplied by yuan for flexible purposes, with permission granted to two Hong Kong banks to sell yuan-based bonds, with an admitted rise in significant gold bullion reserves, and with continued verbal battles over legitimacy of the USDollar as the global reserve currency. These Chinese initiatives in recent weeks, occurring rapidly, are serving as a collective extreme event with the potential for profound disruption. A gold-backed yuan currency would surely cause massive disruption in a climax merger of events. The barter system set up between Russia and Europe will bypass the US$-based settlement system, as will the barter system set up between Russia and China. The avoidance of contract settlement in USDollars would result in extreme disruption to the global banking system. (more)
Wednesday, May 27, 2009
The Ruff Times
An Interview on Our Inflationary Future
John Williams publishes the Shadow Government Statistics newsletter. He is an amazing professional economist with a tremendous grasp of the real economy. Shadow Government Statistics reconstructs published government statistics the accurate way we used to do it, making them actually reflect reality (as opposed to the way Washington now manipulates these numbers). In so doing, he comes up with different conclusions about the economy, such as the Consumer Price Index (CPI), and other revealing areas published by government. Here’s a portion of an interview I recently did with him in the Ruff Times.
JW : In the late ‘70s, the ten biggest accounting firms and congress said they could design an accounting system where the government will report its books the same way a company does.
They finally got that into effect in 2000. Since then, instead of running deficits in the range of a couple of billion dollars, on a Generally Accepted Accounting Principal (GAAP) basis, the deficit has averaged $4 trillion a year. It was over $5 trillion in 2008 and will top $8 trillion this year.
This is unsustainable! You could not raise taxes enough to bring that into balance. If you wanted to bring it into balance, you’d have to eliminate Social Security and Medicare payments. 
HJR : Right now, Obama is spending money – I won’t say like a drunken sailor, because a drunken sailor spends his own money – but he is throwing trillions of dollars at the economic downturn, assuming it will stimulate us out.
JW : It will not stimulate the economy. The cost of all this is inflation. We will see inflation levels not seen in our lifetime by as early as the end of this year.Eventually we will see liabilities of $65 trillion – more than four times U.S. GDP, more than global GDP. There will be a hyperinflation where the dollar becomes worthless, where the paper is worth more as wall paper than as currency.
HJR : How can we protect the value of our assets, assuming that people have some discretionary money? Should they buy growth stocks because they are cheap, assuming “buy low, sell high?” Or are there better alternatives?
JW : We are headed into a hyperinflationary depression that will become another Great Depression. When hyperinflation hits, it will disrupt the normal flow of commerce and turn it into a depression. What about paper assets based on the dollar? You want to get into something like gold or silver – physical gold or silver, not paper. Perhaps get some assets outside the dollar. It’s a time to preserve your wealth and assets, not to start speculating on the stock market. There is a lot of volatility ahead. Over the long term, gold and silver are your best hedges.
HJR : That sounds like the familiar tune I’ve been singing for several years. I’ve been publishing for 33 years. About 11 of those years I have been bullish on gold and silver as investments. When I abandoned gold in the early ‘80s, I was excommunicated from the gold-bug church because I was supposed to stay faithful to gold, but, back then, the metals weren’t the right place to put your money. As a financial adviser, if I don’t have subscribers in the right investments, they will lose money and not renew their subscription to The Ruff Times. So I have a financial interest in being right. Yogi Berra said, “It’s déjà vu all over again.” the same thing is happening that I saw in the ‘70s that drove the prices of gold and silver to unprecedented highs, onl! y more so.
You showed me a display of Zimbabwe currency, where multi-billion dollar notes started out as $2-bill notes. We could face the same thing. The world is littered with worthless dead-paper currencies with an average life span of about 75 years.
History doesn’t record a single example when a society inflated the dominant currency even near the quantities we are creating dollars now without destroying its value. Gold and silver, not being anyone’s debt or obligation, is where people ought to put their money.
Suckers Suckers Everywhere
There are some days where I just shrug my shoulders and other days when I am amazed by what I witness. Today, I was amazed but not shocked.
Consumer confidence rose sharply as Il Duce apparently managed to convince enough souls that that empty feeling in the pit of their stomach was not hunger but in fact a new national diet program based on the “Ain’t got no job, ain’t got no home” principle. The American people, as predicted on this blog, would fall to the mesmerizing spell of Obama announcing the obvious to become a United States Supreme Court Justice. We can thank the Republican party for this one. Yet most people are already starting their faux political bluster not so much to stand on a true belief but instead to get their vocal opposition to anything Obama does on television or radio, while the real news fades into the background. (more)
The greatest swindle ever sold
On October 3, 2008, as the spreading economic meltdown threatened to topple financial behemoths like American International Group (AIG) and Bank of America and plunged global markets into freefall, the US government responded with the largest bailout in American history. The Emergency Economic Stabilization Act of 2008, better known as the Troubled Asset Relief Program (TARP), authorized the use of US$700 billion to stabilize the nation's failing financial systems and restore the flow of credit in the economy.
The legislation's guidelines for crafting the rescue plan were clear: the TARP should protect home values and consumer savings, help citizens keep their homes, and create jobs. Above all, with the government poised to invest hundreds of billions of taxpayer dollars in various financial institutions, the legislation urged the bailout's architects to maximize returns to the American people.
That $700 billion bailout has since grown into a more than $12 trillion commitment by the US government and the Federal Reserve. About $1.1 trillion of that is taxpayer money - the TARP money and an additional $400 billion rescue of mortgage companies Fannie Mae and Freddie Mac. The TARP now includes 12 separate programs, and recipients range from megabanks like Citigroup and JPMorgan Chase to automakers Chrysler and General Motors. (more)
The legislation's guidelines for crafting the rescue plan were clear: the TARP should protect home values and consumer savings, help citizens keep their homes, and create jobs. Above all, with the government poised to invest hundreds of billions of taxpayer dollars in various financial institutions, the legislation urged the bailout's architects to maximize returns to the American people.
That $700 billion bailout has since grown into a more than $12 trillion commitment by the US government and the Federal Reserve. About $1.1 trillion of that is taxpayer money - the TARP money and an additional $400 billion rescue of mortgage companies Fannie Mae and Freddie Mac. The TARP now includes 12 separate programs, and recipients range from megabanks like Citigroup and JPMorgan Chase to automakers Chrysler and General Motors. (more)
Tuesday, May 26, 2009
How Hyperinflation Will, Without Any Doubt, Be Created In The USA
Posted: May 26 2009 By: Jim Sinclair
Filed under: General Editorial
Dear CIGAs,
With the Fed prepared to buy Treasuries, the US will not at this time face a failed auction. If they weren’t that would be the scenario we would now be facing.
The under-current of the utilization of quantitative easing is hyper inflationary because it is so dollar negative.
Remember hyperinflation is NOT an economic event, it is a currency event.
If you study market history you will see the glaring truth that the Weimar experience would not have happened if German debt markets were not used as a vehicle to heavily short the Weimar Mark.
It was the Weimar mark short sellers that created the Weimar hyperinflation just as the OTC derivative shorts will cream the US dollar with the unavoidable effect being hyperinflation.
I know of what I speak. About the above there is no doubt. There is no real argument to the contrary and you can count the number of those outside of our community on one hand who understand how hyperinflation is created.
http://jsmineset.com/2009/05/26/how-hyperinflation-will-without-any-doubt-be-created-in-the-usa/
Filed under: General Editorial
Dear CIGAs,
With the Fed prepared to buy Treasuries, the US will not at this time face a failed auction. If they weren’t that would be the scenario we would now be facing.
The under-current of the utilization of quantitative easing is hyper inflationary because it is so dollar negative.
Remember hyperinflation is NOT an economic event, it is a currency event.
If you study market history you will see the glaring truth that the Weimar experience would not have happened if German debt markets were not used as a vehicle to heavily short the Weimar Mark.
It was the Weimar mark short sellers that created the Weimar hyperinflation just as the OTC derivative shorts will cream the US dollar with the unavoidable effect being hyperinflation.
I know of what I speak. About the above there is no doubt. There is no real argument to the contrary and you can count the number of those outside of our community on one hand who understand how hyperinflation is created.
http://jsmineset.com/2009/05/26/how-hyperinflation-will-without-any-doubt-be-created-in-the-usa/
Saudi warns of $150 oil within three years
Published: May 25 2009 18:59 | Last updated: May 25 2009 18:59
Saudi Arabia warned oil prices could spike to beyond the near $150 record high of 2008 within three years as it joined other energy leaders on Monday to call for more investment to boost production over the long term.
Energy ministers and officials at the Group of Eight energy summit wrapped up the two-day meeting by urging the industry to pump money into projects to expand capacity despite the credit crisis, which has put the brakes on investment.
Saudi Arabian Oil Minister Ali Naimi said the world was heading for a fresh spike after the current phase of faltering demand and lower prices, which he said reflected the economic downturn rather than being an indicator of things to come.
”We are maintaining our long-term focus rather than being swayed by the volatility of short-term conditions,” he said in prepared remarks at the summit. (more)
Saudi Arabia warned oil prices could spike to beyond the near $150 record high of 2008 within three years as it joined other energy leaders on Monday to call for more investment to boost production over the long term.
Energy ministers and officials at the Group of Eight energy summit wrapped up the two-day meeting by urging the industry to pump money into projects to expand capacity despite the credit crisis, which has put the brakes on investment.
Saudi Arabian Oil Minister Ali Naimi said the world was heading for a fresh spike after the current phase of faltering demand and lower prices, which he said reflected the economic downturn rather than being an indicator of things to come.
”We are maintaining our long-term focus rather than being swayed by the volatility of short-term conditions,” he said in prepared remarks at the summit. (more)
Home Prices Continue Downward March
By KERRY E. GRACE and KEVIN KINGSBURY
U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.
Meanwhile, U.S. consumer confidence improved sharply in May, especially in expectations for the economy six months from now, a report released Tuesday said.
For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.
Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002. (more)
U.S. home prices continued their multiyear tumble in March, according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating.
Meanwhile, U.S. consumer confidence improved sharply in May, especially in expectations for the economy six months from now, a report released Tuesday said.
For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. S&P Case-Shiller releases 10-city and 20-city indexes every month, but also releases a broader national index every quarter.
Separately, the monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002. (more)
From Bubble Housing Glory to Housing Bust Toxic Mortgage Pain.
Alt-A and Pay Options ARMs: Four States make up 46% of Alt-A loans. Examining California, Florida, Nevada, and Arizona. From Bubble Housing Glory to Housing Bust Toxic Mortgage Pain.
Four states have felt the joy of housing appreciation and the agony of the housing bust in a very deep and extreme way. Without a doubt, this economic crisis is touching every corner of the global economy but four states have seen the multifaceted punishment of this housing and credit bust. Those states are California, Florida, Nevada, and Arizona and these past days I was able to see first hand three of the states. Spending time in these few states and contributing my own economic stimulus to these economies, I realize that the housing downturn still has further to go. These states are ground zero for the coming Alt-A and pay Option ARM wave that will be crashing down on us later in the year.
Driving through these states and the vast subdivisions hugging the desert you can quickly put a face to the economic devastation. How many of these homes sit empty? Will these homes ever have occupants? How much money has been lost in this pursuit of endless housing wealth? You also witness the countless commercial real estate developments that encircle these areas with your typical chain fast food restaurants and your mega shopping center. Some don’t realize that these commercial real estate developments are usually brought out 12 to 18 months after the construction of the new subdivisions. That is, the commercial real estate bust is the next big thing to watch since these stores were developed to service a population that isn’t moving in. (more)
Four states have felt the joy of housing appreciation and the agony of the housing bust in a very deep and extreme way. Without a doubt, this economic crisis is touching every corner of the global economy but four states have seen the multifaceted punishment of this housing and credit bust. Those states are California, Florida, Nevada, and Arizona and these past days I was able to see first hand three of the states. Spending time in these few states and contributing my own economic stimulus to these economies, I realize that the housing downturn still has further to go. These states are ground zero for the coming Alt-A and pay Option ARM wave that will be crashing down on us later in the year.
Driving through these states and the vast subdivisions hugging the desert you can quickly put a face to the economic devastation. How many of these homes sit empty? Will these homes ever have occupants? How much money has been lost in this pursuit of endless housing wealth? You also witness the countless commercial real estate developments that encircle these areas with your typical chain fast food restaurants and your mega shopping center. Some don’t realize that these commercial real estate developments are usually brought out 12 to 18 months after the construction of the new subdivisions. That is, the commercial real estate bust is the next big thing to watch since these stores were developed to service a population that isn’t moving in. (more)
Federal Reserve holding over $2 trillion in the Darkest Balance Sheet in Financial History.
The U.S. Treasury and the Federal Reserve have arguably two of the least transparent balance sheets known to humankind. This wouldn’t be such a big issue if the amount of money funneled into these organizations was small. That is not the case. The Federal Reserve since October of 2008 has held on its balance sheet over $2 trillion in reserve bank credit and also, Federal Reserve Holdings of U.S. Treasuries. This of course is the biggest bait in switch in history because in exchange for U.S. Treasuries, banks can offload practically any collateral (i.e., mortgages, auto loans, credit card loans, etc). The U.S. Treasury and Federal Reserve are creating the biggest put option in the history of the world and the American taxpayer stands to lose big. (more)
Dollar Shorts at Highest Since Pre-Crisis
FX Commentary From CMC Markets UK For May 26, 2009
This week’s $100 billion in new US Treasury auctions of 2, 5 and 7-year notes appears likely to undergo extra scrutiny regarding the appetite from foreign investors considering the vicious feedback loop that has been weighing on the value of the US dollar and the price of US treasuries. Last week’s close above the $1.40 level in EURUSD was among the high profile technical signals supporting the potential for prolonged EUR strength ahead against USD, which could serve as a proxy for the broader USD flows. A weekly close below $1.37 in EURUSD would appear necessary to deal any serious relief to USD-sentiment.
Last week’s data from currency futures showed EUR longs vs. USD exceeded the shorts by 12,250 contracts—the highest level since the week of July 15 (the week when EURUSD hit its record high). Meanwhile, JPY longs vs. USD exceeded the shorts by 6,000 contracts, the highest since March. Aussie net longs vs. USD also hit their highest since July, reflecting the extent of apparently deepening anti-USD sentiment among the speculative (non-commercial) community. Considering that EUR and JPY net longs vs. USD are about 11 times lower than their record highs, speculators seem to have plenty of upside against the USD in terms of quantity as well as price. Any signs of weakness in Wednesday’s auction of $35 bln in 5-year T-notes and Thursday’s auction of $25 bln in 7-year T-notes may give more fundamental leeway for speculators to pile on shorting the US currency and build up a gradual path towards $1.47 vs. EUR and 91 yen.
FX carry trades searching the extra yield away from USD and JPY into commodity and EM currencies may closely watch the ensuing retreat in risk appetite, particularly the 880, 8,200 and 4,300 levels in the S&P500, Dow-30 and FTSE-100 respectively. These levels acted as substantial points of resistance in April, which have now turned to considerable points of support. A breach below these levels would be the next litmus test for whether dollar stability will re-establish itself under rising risk aversion. The gauges of the “sell-US assets trade have been cogently manifested last week via a rare negative trifecta of falling USD index, falling treasury prices and falling equity indices.
This week’s $100 billion in new US Treasury auctions of 2, 5 and 7-year notes appears likely to undergo extra scrutiny regarding the appetite from foreign investors considering the vicious feedback loop that has been weighing on the value of the US dollar and the price of US treasuries. Last week’s close above the $1.40 level in EURUSD was among the high profile technical signals supporting the potential for prolonged EUR strength ahead against USD, which could serve as a proxy for the broader USD flows. A weekly close below $1.37 in EURUSD would appear necessary to deal any serious relief to USD-sentiment.
Last week’s data from currency futures showed EUR longs vs. USD exceeded the shorts by 12,250 contracts—the highest level since the week of July 15 (the week when EURUSD hit its record high). Meanwhile, JPY longs vs. USD exceeded the shorts by 6,000 contracts, the highest since March. Aussie net longs vs. USD also hit their highest since July, reflecting the extent of apparently deepening anti-USD sentiment among the speculative (non-commercial) community. Considering that EUR and JPY net longs vs. USD are about 11 times lower than their record highs, speculators seem to have plenty of upside against the USD in terms of quantity as well as price. Any signs of weakness in Wednesday’s auction of $35 bln in 5-year T-notes and Thursday’s auction of $25 bln in 7-year T-notes may give more fundamental leeway for speculators to pile on shorting the US currency and build up a gradual path towards $1.47 vs. EUR and 91 yen.
FX carry trades searching the extra yield away from USD and JPY into commodity and EM currencies may closely watch the ensuing retreat in risk appetite, particularly the 880, 8,200 and 4,300 levels in the S&P500, Dow-30 and FTSE-100 respectively. These levels acted as substantial points of resistance in April, which have now turned to considerable points of support. A breach below these levels would be the next litmus test for whether dollar stability will re-establish itself under rising risk aversion. The gauges of the “sell-US assets trade have been cogently manifested last week via a rare negative trifecta of falling USD index, falling treasury prices and falling equity indices.
Monday, May 25, 2009
How Currencies Affect Global Markets
Friday, May 22, 2009
by Tim Evans of Lind-Waldock
We all witnessed a global equity market meltdown of equity prices over the last 12 months. During the same time frame, we saw a boom-and-bust cycle in commodities. In my opinion, we are now in the middle of a significant shift in dynamics for currency markets throughout the world.
Just like any market, the value of a currency is determined by fundamental supply and demand factors. On the demand side of the equation, a currency is more valuable when its respective economy is growing. If the economy is active and money is flowing into a country, this is viewed as positive for the country’s currency. To put it simply, an active and growing economy creates demand for the currency.
Interest rates also have a strong affect on the value of a currency. The old adage in the trading world is “money chases yield.” Money will seek the highest return by flowing to a country with higher interest rates. Therefore, demand will grow for the currency in the country with higher interest rates. Higher demand often leads to a stronger currency. (more)
Peter Grandich on Stocks, Commodities, Bonds
U.S. Stock Market – Weakness in the final hour strongly suggests the tremendous bear market rally is petering out. Technically, you can’t rule out another try to the upside but unless breath and volume greatly expand, it would just set us up for an even bigger decline. Remember, I don’t believe we’re straight down this time around but rather a slow bleed for several months ahead.
While the “Don’t Worry, Be Happy” crowd has pulled out all stops in their quest to
manufacturer “green shoots”, what we’re likely to witness at best is a lessening of the descent in economic activity. The “happy” people would like you to believe we can go from crash to recovery without a recession. Maybe on CNBC that can play (after all, it’s the home of fantasies) out but in the real world we’ll need many months of flat growth before any sustained recovery can take place.
Foreign Stock Markets – As you know I sold off all exposure to equity markets worldwide. If you put a gun to my head (I hope this doesn’t give anybody thought), I would have exposure to China but even there the recent pop up economically seems to be flattening out. (more)
Marc Faber Interview w/ Max Keiser
by Admin on 05/25/2009
Marc Faber was interviewed by Max Keiser. Most of the interview is in the second part of the video. Among the topics covered include inflation, gold, and the current economic environment.
“In the long run, this will be an inflationary environment” (more)
Marc Faber was interviewed by Max Keiser. Most of the interview is in the second part of the video. Among the topics covered include inflation, gold, and the current economic environment.
“In the long run, this will be an inflationary environment” (more)
AngloGold stumbles over hedges
The cost of betting on the gold price is now all too clear, writes Jim Jones.
Back in the mid-’90s, when Anglo American’s gold division (AngloGold, as it came to be called) was more or less happy to be a South African company, management strategy was simple. The idea was to hedge about 10% to 20% of annual gold production forward for each of the coming five years. Annual revenues would be protected from a fall in the gold price and, should gold rise, the company would benefit from the rise on 80% to 90% of its output.
The company’s hedge book was then in the region of 100 tons of gold against annual production of about 200 tons.
But international expansion entered the picture. Under Bobby Godsell, AngloGold started heading out of South Africa. (more)
Back in the mid-’90s, when Anglo American’s gold division (AngloGold, as it came to be called) was more or less happy to be a South African company, management strategy was simple. The idea was to hedge about 10% to 20% of annual gold production forward for each of the coming five years. Annual revenues would be protected from a fall in the gold price and, should gold rise, the company would benefit from the rise on 80% to 90% of its output.
The company’s hedge book was then in the region of 100 tons of gold against annual production of about 200 tons.
But international expansion entered the picture. Under Bobby Godsell, AngloGold started heading out of South Africa. (more)
Sunday, May 24, 2009
US$, Gold and Silver charts
Technically Precious with Merv For week ending 22 May 2009
The week started out on a sour note but ended up okay. Gold seems now to be more
comfortable on the up side. The sharp drop in the U.S. dollar isn’t hurting any.
I get into the U.S. $ Index every now and then. I was planning to talk about it briefly over the
past several weeks but I just kept putting it off. Well, here it is and Obama’s stimulus program
is really working as expected. Unfortunately, many analysts are convinced that this is just the
start of the U.S. $ plunge. Trillions in debt, what could possibly go wrong?
(more / PDF file)
Gold & Silver Stocks Breaking Out
Precious Metal Stocks
Several gold and silver stocks are breaking out today (5/20/09). It remains to be seen if they hold and obtain, but right now it is occurring.
Many of these stocks have been on our stock watch list, in the portfolio, and or in recent email updates.
Following are the charts of some of those breaking out today: GG, AEM, GFI, PAAS, and SLW. There are others as well.
There is nothing much to say that the charts aren't saying, except that breakouts can fail and they need further confirmation from both price action and volume. (more)
A Different Look At Past Financial Crisis
the Great Depression, Montagu Norman, the Federal
Reserve, fiat money, gold, the Bank for International
Settlements, inflation/deflation, the train
wreck financial crisis...
Click here to listen
Economic Collapse to Trigger Social Pandemonium
Lee Bellinger
(Editor's Note: This urgent, time-sensitive briefing from Lee Bellinger, Publisher of Independent Living, reveals some deeply disturbing developments right under the surface. While, to some, the following might seem like sensationalist hogwash, to your editor, it is like "singing to the choir". It would be foolish not to consider these possibilities. - JSB)
U.S. Preparing a Military Response to Coming Social Chaos
As the shocking confidential information contained in this briefing shows, the threat of social meltdown and chaos is so large a domestic law-enforcement arm of the U.S. military (referred to by The Army Times as the "Consequence Management Response Force") has been created to deal with what U.S. officials believe to be a coming, unprecedented wave of massive social chaos.
Later I'll show you why many Washington insiders (including officials directly involved in homeland security) are personally making emergency preparations for social chaos. In addition, outgoing Treasury Secretary Hank Paulson told Sen. James Inhofe and Rep. Brad Sherman that so much financial mayhem lies ahead U.S. troops may have to impose martial law to deal with social unrest. (more)
(Editor's Note: This urgent, time-sensitive briefing from Lee Bellinger, Publisher of Independent Living, reveals some deeply disturbing developments right under the surface. While, to some, the following might seem like sensationalist hogwash, to your editor, it is like "singing to the choir". It would be foolish not to consider these possibilities. - JSB)
U.S. Preparing a Military Response to Coming Social Chaos
As the shocking confidential information contained in this briefing shows, the threat of social meltdown and chaos is so large a domestic law-enforcement arm of the U.S. military (referred to by The Army Times as the "Consequence Management Response Force") has been created to deal with what U.S. officials believe to be a coming, unprecedented wave of massive social chaos.
Later I'll show you why many Washington insiders (including officials directly involved in homeland security) are personally making emergency preparations for social chaos. In addition, outgoing Treasury Secretary Hank Paulson told Sen. James Inhofe and Rep. Brad Sherman that so much financial mayhem lies ahead U.S. troops may have to impose martial law to deal with social unrest. (more)
Friday, May 22, 2009
TIME TO GET OUT THE WHEELBARROWS? ANOTHER LOOK AT THE WEIMAR HYPERINFLATION
“It was horrible. Horrible! Like lightning it struck. No one was prepared. The shelves in the grocery stores were empty.You could buy nothing with your paper money.
– Harvard University law professor Friedrich Kessler on on the Weimar Republic hyperinflation (1993 interview)
Some worried commentators are predicting a massive hyperinflation of the sort suffered by Weimar Germany in 1923, when a wheelbarrow full of paper money could barely buy a loaf of bread. An April 29 editorial in the San Francisco Examiner warned:
“With an unprecedented deficit that’s approaching $2 trillion, [the President’s 2010] budget proposal is a surefire prescription for hyperinflation. So every senator and representative who votes for this monster $3.6 trillion budget will be endorsing a spending spree that could very well turn America into the next Weimar Republic.”1
In an investment newsletter called Money Morning on April 9, Martin Hutchinson pointed to disturbing parallels between current government monetary policy and Weimar Germany’s, when 50% of government spending was being funded by seigniorage – merely printing money.2 However, there is something puzzling in his data. He indicates that the British government is already funding more of its budget by seigniorage than Weimar Germany did at the height of its massive hyperinflation; yet the pound is still holding its own, under circumstances said to have caused the complete destruction of the German mark. Something else must have been responsible for the mark’s collapse besides mere money-printing to meet the government’s budget, but what? And are we threatened by the same risk today? Let’s take a closer look at the data. (more)
Gold Headed Higher and the New Bubble in the US Treasury Market
By Bill Bonner • May 22nd, 2009 •
Are you watching the dollar? Maybe the unwinding of the dollar- based paper money system is coming sooner than we expected. Yesterday, the dollar fell again - now it costs $1.37 to buy a euro. And if you want an ounce of gold, it will cost you $937.
It looks to us as though gold is headed to $1,000 again...maybe higher. This is not what we expected... Not yet anyway.
What we still expect is a broad, long rally in stock prices. We think the Dow might go back to 10,000 before it is over. This is the rebound we were waiting for. It should boost asset prices generally - including gold, commodities and oil - as well as stocks.
Oil, by the way, rose $2 yesterday too. It's back to $62.
But this trend is probably a fake out. Underlying the positive market news is an economy that continues to decay, degrade and deflate. Remember, this is a depression, not a recession. The bubble era is over. Because the transmission is broken. The financial industry has blown up. It won't be repaired. Instead, it will be bailed out...nursed along...and mollycoddled. (more)
Are you watching the dollar? Maybe the unwinding of the dollar- based paper money system is coming sooner than we expected. Yesterday, the dollar fell again - now it costs $1.37 to buy a euro. And if you want an ounce of gold, it will cost you $937.
It looks to us as though gold is headed to $1,000 again...maybe higher. This is not what we expected... Not yet anyway.
What we still expect is a broad, long rally in stock prices. We think the Dow might go back to 10,000 before it is over. This is the rebound we were waiting for. It should boost asset prices generally - including gold, commodities and oil - as well as stocks.
Oil, by the way, rose $2 yesterday too. It's back to $62.
But this trend is probably a fake out. Underlying the positive market news is an economy that continues to decay, degrade and deflate. Remember, this is a depression, not a recession. The bubble era is over. Because the transmission is broken. The financial industry has blown up. It won't be repaired. Instead, it will be bailed out...nursed along...and mollycoddled. (more)
Uranium: A Carbon-friendly Substitute for Coal
By Dan Denning • May 22nd, 2009 •
Meanwhile, here in Australia, while the federal budget deficit looms as a growing threat the structural health of the economy, there are actual positive economic stories going on, mostly in the energy and resource markets.
BHP is seeking permission from the West Australian government to mine the Yeelirie deposit in WA. BHP reckons it's a $17 billion ore body at current uranium prices, capable of producing 5,000 tonnes of uranium a year for 30 years. It says the project would increase Australia's uranium exports by 50%.
You don't have to worry about a uranium supply glut quite yet, though. It's a subject we've been covering over at Diggers and Drillers. There are other, smaller ore bodies that could enter into production if the uranium industry ever gets off the ground in Queensland. And many Australian explorers are active in Africa.
But the big story of the week-the one that's got us really excited-has been under-reported. Norway's largest oil company, StatoilHydro, and Chesapeake Energy Corp. from the States are kicking around Asia and Europe for unconventional natural gas projects to develop. Asia includes Australia, according to the story in Bloomberg. (more)
Meanwhile, here in Australia, while the federal budget deficit looms as a growing threat the structural health of the economy, there are actual positive economic stories going on, mostly in the energy and resource markets.
BHP is seeking permission from the West Australian government to mine the Yeelirie deposit in WA. BHP reckons it's a $17 billion ore body at current uranium prices, capable of producing 5,000 tonnes of uranium a year for 30 years. It says the project would increase Australia's uranium exports by 50%.
You don't have to worry about a uranium supply glut quite yet, though. It's a subject we've been covering over at Diggers and Drillers. There are other, smaller ore bodies that could enter into production if the uranium industry ever gets off the ground in Queensland. And many Australian explorers are active in Africa.
But the big story of the week-the one that's got us really excited-has been under-reported. Norway's largest oil company, StatoilHydro, and Chesapeake Energy Corp. from the States are kicking around Asia and Europe for unconventional natural gas projects to develop. Asia includes Australia, according to the story in Bloomberg. (more)
The Silver Lining Behind the Depressionary Cloud
On the grand scale, the U.S. dollar is still the major gladiator in the currency and economic arena. It is like a punch-drunk prizefighter, staggering, but still on its feet…wobbling, but able to inflict substantial damage on its economic opponents, those who would carelessly trade against it.
“The U.S. accumulated $9 trillion dollars of debt in 240 years, and in a mere year and a half, adds another $8 trillion? And for what? The credit markets are still frozen solid,” writes analyst Christopher Laird from Financial Sense. “Over $1,000 trillion of leveraged markets are unwinding, and if you add up all the central bank efforts...it adds up to $15-20 trillion.”
In short, both in the United States and abroad, the so-called “Herculean efforts” to stem the tide of the crises amount to little more than spitting in the ocean.
Credit card defaults are up 44%. With millions out of work already, and millions more to be added to their dreary clique, defaults on credit cards aren’t going to be the only thing rising. Reports emerged last week that currently 25% of all homeowners are “upside down” in their mortgages — that is, they owe more than their house is currently worth.
That is a huge number. Many will try to stick it out for as long as they can. After all, they have to live somewhere, might as well stay put as long as they can afford it. The question becomes, how long will that be? While job losses may have slowed in the last 30 days, they are still skyrocketing. And there is no guarantee that they won’t begin to re-accelerate.
But Americans are used to paying more for things than what they are worth. Frankly, the commonplace use of credit cards has “taught” us that you can pay 30% more for anything you want, and it’s still OK. Of course, that 30% premium figure only applies if you pay off your balance in 12 months. If you carry your debt with the convenience of “minimum payments,” you’ll pay dearly for that expense.
Consumer debt has climbed to $2.6 trillion — up 24% from 2004. A good part of that is new spending. But the ever-increasing portion is the service on the debt. That’s the “secret” to banks getting rich, the miracle of compound interest. Of course, it is only a benefit as long as the debt does not compound faster than the ability to pay it. After that point, the borrower has the lender by the nose, and he begins to be a double liability.
The first is that he owes the money; the second is the increased likelihood he will not pay. Because truthfully, when the borrower must decide whether to buy food or to pay his MasterCard, food will always win. So will shelter.
But even though Americans have grown steadily more and more comfortable with the idea of paying too much for things, that is ready to change. I reported to you a few weeks ago that people were paying down credit card debt and increasing their savings.
Don’t expect it to last, though. I doubt that both can exist simultaneously for very long. Debt will cease to be serviced as savings grow. There is also another corollary to that statement. Spending will cease (or at least dramatically slow) as savings increases. Americans do not have enough to do both.
As the citizenry, so is the government. The United States is bankrupt. Is there any feasible way to deny this? We have seen dollar strength in the last year as financials around the world have unwound their positions and brought their money back to the U.S. “safe haven.” But watching people flock into Treasuries is like watching people board the Titanic. It was said that “God himself could not sink this ship.” But I remind you, “Do not be deceived, God is not mocked.” What we are doing nationally is wrong. Inflation is theft. God judges theft. Period.
And that’s not all. One of our nation’s founding principles was “No taxation without representation.” But we are taxing our children and grandchildren while they have no say in the matter. They have been disenfranchised before they even had a chance to vote! Imprudent. Insidious. Immoral.
The Fed finally released the results of the “stress tests” on U.S. banks last week...what a crock! Of 19 banks, only 10 of them need additional capital. Well, isn’t that nice? And they only need to “raise” $75 billion. But how? Additional stock offerings? Bank of America would only need to find buyers for 2.6 billion shares at the current price. Citi would only need just under two billion shares sold. And GMAC? Only a paltry 958,000,000. (Maybe they should think about selling bonds...)
Here’s the skinny: These three banks, and seven others, will be “required” to raise this capital. But “required” is a funny way to phrase it. It implies consequences. But what is the penalty for failing to raise the capital? And just as importantly, where is it going to come from?
Well, the government won’t let the banks fail. So it will threaten a takeover if the banks don’t raise the capital independently. Once they cannot raise it independently, they will sidle up to the public teat for more taxpayer milk, and the government will effectively own them anyway. There’s no such thing as a free lunch. And when the government gives out free money, you can bet there are enough strings attached to tie down a herd of wild elephants.
We also saw the jobs report last week, which we commented on briefly earlier. And, yes, the numbers showed improvement. A forecast of 600,000 was eclipsed by a loss of only 539,000. Still above a half million. For those keeping score, that should put us above the three million mark for 2009. Do you still think consumer spending will continue to increase?
All of this debt, both public and private, puts unrelenting pressure on a currency. Add that to external pressures we have recently discussed, like the China/Argentina $10 billion currency swap. This is the sixth nation with which China has initiated such an action. Its impact? Just this: For all the trades taking place between these two nations, no money has to be converted into dollars. Lack of dollar buying means the dollar grows weaker yet. Because, honestly, much of the dollar strength we’ve seen in the last year has been the unwinding of positions that eventually required “parking” wealth into U.S. dollars.
But without that support, combined with the Treasury’s commitment to unlimited printing of money and the administration’s commitment to unlimited spending of money, the dollar is going to be in real trouble. Even now we are starting to see other currencies flex their muscles a bit.
The Commodity Dollars — currencies in countries where natural resources dominate the GDP — were going to be the strength of the currency bulls going forward. One such commodity that requires a good look is silver. Often called the poor man’s gold, silver is a precious metal that is only fractionally the value of gold, $10-15/ounce, versus $900/ounce. But that view may one day change. Did you know that 90% of all the silver that has ever been mined no longer exists? That’s because it is a lot more versatile than gold in many industrial applications. The downside is that it gets mined, used and lost.
So, that naturally limits supply…and sets it up for just as much of a percentage increase in value as gold.
In the event of currency default, which is not out of the picture, although I know it sounds drastic, silver coins are much more easily used as currency than gold, simply because of the relative value. Think of it like this: If a society abandons its currency for hard money, which would be easier to spend on a week’s worth of groceries...a $50 silver eagle or a $4,000 gold Krugerrand? Of course, you could clip the coins as necessary, but if you have a $25 bill, good luck clipping its value out of the Krugerrand! Besides that, silver is currently cheaper and easy to acquire.
But we’re talking about a day that has not arrived yet and may not for some time. I just want you to know that when it comes, you’ll have many ways to play it. Like, for instance, with metals producers like Canada and Australia.
Regards,
Bill Jenkins
“The U.S. accumulated $9 trillion dollars of debt in 240 years, and in a mere year and a half, adds another $8 trillion? And for what? The credit markets are still frozen solid,” writes analyst Christopher Laird from Financial Sense. “Over $1,000 trillion of leveraged markets are unwinding, and if you add up all the central bank efforts...it adds up to $15-20 trillion.”
In short, both in the United States and abroad, the so-called “Herculean efforts” to stem the tide of the crises amount to little more than spitting in the ocean.
Credit card defaults are up 44%. With millions out of work already, and millions more to be added to their dreary clique, defaults on credit cards aren’t going to be the only thing rising. Reports emerged last week that currently 25% of all homeowners are “upside down” in their mortgages — that is, they owe more than their house is currently worth.
That is a huge number. Many will try to stick it out for as long as they can. After all, they have to live somewhere, might as well stay put as long as they can afford it. The question becomes, how long will that be? While job losses may have slowed in the last 30 days, they are still skyrocketing. And there is no guarantee that they won’t begin to re-accelerate.
But Americans are used to paying more for things than what they are worth. Frankly, the commonplace use of credit cards has “taught” us that you can pay 30% more for anything you want, and it’s still OK. Of course, that 30% premium figure only applies if you pay off your balance in 12 months. If you carry your debt with the convenience of “minimum payments,” you’ll pay dearly for that expense.
Consumer debt has climbed to $2.6 trillion — up 24% from 2004. A good part of that is new spending. But the ever-increasing portion is the service on the debt. That’s the “secret” to banks getting rich, the miracle of compound interest. Of course, it is only a benefit as long as the debt does not compound faster than the ability to pay it. After that point, the borrower has the lender by the nose, and he begins to be a double liability.
The first is that he owes the money; the second is the increased likelihood he will not pay. Because truthfully, when the borrower must decide whether to buy food or to pay his MasterCard, food will always win. So will shelter.
But even though Americans have grown steadily more and more comfortable with the idea of paying too much for things, that is ready to change. I reported to you a few weeks ago that people were paying down credit card debt and increasing their savings.
Don’t expect it to last, though. I doubt that both can exist simultaneously for very long. Debt will cease to be serviced as savings grow. There is also another corollary to that statement. Spending will cease (or at least dramatically slow) as savings increases. Americans do not have enough to do both.
As the citizenry, so is the government. The United States is bankrupt. Is there any feasible way to deny this? We have seen dollar strength in the last year as financials around the world have unwound their positions and brought their money back to the U.S. “safe haven.” But watching people flock into Treasuries is like watching people board the Titanic. It was said that “God himself could not sink this ship.” But I remind you, “Do not be deceived, God is not mocked.” What we are doing nationally is wrong. Inflation is theft. God judges theft. Period.
And that’s not all. One of our nation’s founding principles was “No taxation without representation.” But we are taxing our children and grandchildren while they have no say in the matter. They have been disenfranchised before they even had a chance to vote! Imprudent. Insidious. Immoral.
The Fed finally released the results of the “stress tests” on U.S. banks last week...what a crock! Of 19 banks, only 10 of them need additional capital. Well, isn’t that nice? And they only need to “raise” $75 billion. But how? Additional stock offerings? Bank of America would only need to find buyers for 2.6 billion shares at the current price. Citi would only need just under two billion shares sold. And GMAC? Only a paltry 958,000,000. (Maybe they should think about selling bonds...)
Here’s the skinny: These three banks, and seven others, will be “required” to raise this capital. But “required” is a funny way to phrase it. It implies consequences. But what is the penalty for failing to raise the capital? And just as importantly, where is it going to come from?
Well, the government won’t let the banks fail. So it will threaten a takeover if the banks don’t raise the capital independently. Once they cannot raise it independently, they will sidle up to the public teat for more taxpayer milk, and the government will effectively own them anyway. There’s no such thing as a free lunch. And when the government gives out free money, you can bet there are enough strings attached to tie down a herd of wild elephants.
We also saw the jobs report last week, which we commented on briefly earlier. And, yes, the numbers showed improvement. A forecast of 600,000 was eclipsed by a loss of only 539,000. Still above a half million. For those keeping score, that should put us above the three million mark for 2009. Do you still think consumer spending will continue to increase?
All of this debt, both public and private, puts unrelenting pressure on a currency. Add that to external pressures we have recently discussed, like the China/Argentina $10 billion currency swap. This is the sixth nation with which China has initiated such an action. Its impact? Just this: For all the trades taking place between these two nations, no money has to be converted into dollars. Lack of dollar buying means the dollar grows weaker yet. Because, honestly, much of the dollar strength we’ve seen in the last year has been the unwinding of positions that eventually required “parking” wealth into U.S. dollars.
But without that support, combined with the Treasury’s commitment to unlimited printing of money and the administration’s commitment to unlimited spending of money, the dollar is going to be in real trouble. Even now we are starting to see other currencies flex their muscles a bit.
The Commodity Dollars — currencies in countries where natural resources dominate the GDP — were going to be the strength of the currency bulls going forward. One such commodity that requires a good look is silver. Often called the poor man’s gold, silver is a precious metal that is only fractionally the value of gold, $10-15/ounce, versus $900/ounce. But that view may one day change. Did you know that 90% of all the silver that has ever been mined no longer exists? That’s because it is a lot more versatile than gold in many industrial applications. The downside is that it gets mined, used and lost.
So, that naturally limits supply…and sets it up for just as much of a percentage increase in value as gold.
In the event of currency default, which is not out of the picture, although I know it sounds drastic, silver coins are much more easily used as currency than gold, simply because of the relative value. Think of it like this: If a society abandons its currency for hard money, which would be easier to spend on a week’s worth of groceries...a $50 silver eagle or a $4,000 gold Krugerrand? Of course, you could clip the coins as necessary, but if you have a $25 bill, good luck clipping its value out of the Krugerrand! Besides that, silver is currently cheaper and easy to acquire.
But we’re talking about a day that has not arrived yet and may not for some time. I just want you to know that when it comes, you’ll have many ways to play it. Like, for instance, with metals producers like Canada and Australia.
Regards,
Bill Jenkins
Thursday, May 21, 2009
Day of reckoning looms for the U.S. dollar
The U.S. dollar's day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks - debt and inflation - are brought under a harsher spotlight.
Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.
"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.
Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation. (more)
Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.
"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.
Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation. (more)
Hourly Action In Gold From Trader Dan
Posted By Dan Norcini On May 21, 2009 @ 2:10 pm In Trader Dan Norcini |
Dear CIGAs,
It was a very volatile day in the markets today with the gold, Forex, and bond markets making big swings. The Bond market in particular utterly collapsed during the session as looming supply fears rattled bond bulls even as equities dissolved. As the bonds dropped through support, the Dollar was smashed lower and gold catapulted higher forcing a wave of short covering and attracting more new buying. That momentum took it easily through yesterday’s session high with price also besting round number psychological resistance at $950. The move is most impressive and the charts are showing an acceleration higher which is coming out of a period of grinding consolidation. I have noted that the RSI is also confirming the upward move with that indicator finally bettering horizontal resistance drawn off the last swing high.
Volume in yesterday’s breach of resistance at $930 was very high and accompanied by a strong surge in open interest. Both are technically bullish, especially the volume reading. Today’s session is showing good volume as well which is serving to confirm the upward thrust. Traders are slowly beginning to roll out of June and into the August contract ahead of the delivery period.
The weekly charts of the HUI and the XAU both look very strong technically. The HUI has finally bested the difficult 50% retracement level drawn off the March 2008 peak near 520 and the October 2009 low near 150. It has had trouble with that level since the beginning of this year so yesterday’s achievement is very significant. It now has a clear shot at the 61.8% retracement level that comes in near the 379 level. If it can conquer that, technically it will be in position to make a run to near the 455-460 level. Most importantly from a trending perspective, the HUI took out the 100 week moving average yesterday which came in near the 359 level. That is no small feat. All of the major moving averages on the weekly chart are either moving upwards or are getting ready to turn higher. (more)
Dear CIGAs,
It was a very volatile day in the markets today with the gold, Forex, and bond markets making big swings. The Bond market in particular utterly collapsed during the session as looming supply fears rattled bond bulls even as equities dissolved. As the bonds dropped through support, the Dollar was smashed lower and gold catapulted higher forcing a wave of short covering and attracting more new buying. That momentum took it easily through yesterday’s session high with price also besting round number psychological resistance at $950. The move is most impressive and the charts are showing an acceleration higher which is coming out of a period of grinding consolidation. I have noted that the RSI is also confirming the upward move with that indicator finally bettering horizontal resistance drawn off the last swing high.
Volume in yesterday’s breach of resistance at $930 was very high and accompanied by a strong surge in open interest. Both are technically bullish, especially the volume reading. Today’s session is showing good volume as well which is serving to confirm the upward thrust. Traders are slowly beginning to roll out of June and into the August contract ahead of the delivery period.
The weekly charts of the HUI and the XAU both look very strong technically. The HUI has finally bested the difficult 50% retracement level drawn off the March 2008 peak near 520 and the October 2009 low near 150. It has had trouble with that level since the beginning of this year so yesterday’s achievement is very significant. It now has a clear shot at the 61.8% retracement level that comes in near the 379 level. If it can conquer that, technically it will be in position to make a run to near the 455-460 level. Most importantly from a trending perspective, the HUI took out the 100 week moving average yesterday which came in near the 359 level. That is no small feat. All of the major moving averages on the weekly chart are either moving upwards or are getting ready to turn higher. (more)
US Treasury Bond Bubble
The bear market in Treasuries will worsen, because of a glut of government bonds. Instead, consider high-yielding mortgage securities and certain munis. (Video)
THE BUBBLE HAS BURST.
We're talking about U.S. Treasury securities, not housing. At the end of 2008, risk-averse investors poured into Treasuries, driving down yields to the lowest levels in decades. The 30-year Treasury bond fetched less than 3%, and short-term T-bills carried yields of zero.
[toc]
Marc Burckhardt
Since then, the economy has shown signs of bottoming, the credit markets are functioning more normally, and the stock market has roared back from its March lows. Treasuries now are in a bear market, while bullish enthusiasm has taken hold in other parts of the credit market, including corporate bonds, municipals and mortgage securities, all of which had fallen from favor late last year. The 30-year Treasury, for instance, has risen to a yield of 4.10% from 2.82% at the end of 2008, cutting its price by 20%. (more)
THE BUBBLE HAS BURST.
We're talking about U.S. Treasury securities, not housing. At the end of 2008, risk-averse investors poured into Treasuries, driving down yields to the lowest levels in decades. The 30-year Treasury bond fetched less than 3%, and short-term T-bills carried yields of zero.
[toc]
Marc Burckhardt
Since then, the economy has shown signs of bottoming, the credit markets are functioning more normally, and the stock market has roared back from its March lows. Treasuries now are in a bear market, while bullish enthusiasm has taken hold in other parts of the credit market, including corporate bonds, municipals and mortgage securities, all of which had fallen from favor late last year. The 30-year Treasury, for instance, has risen to a yield of 4.10% from 2.82% at the end of 2008, cutting its price by 20%. (more)
Is the US-Dollar Headed for a Mighty Crash?
Each month, the US Treasury publishes its International Capital account, (TIC) which foreign currency traders and bond dealers use to gauge the flows of money from around the world, into and out-of the US-capital markets. The demand for a nation's bonds and stocks, combined with international trade flows for goods and services, plus behind the scenes intervention by central banks, all act in concert to influence the foreign exchange market which handles $4-trillion per day.
A surplus in TIC inflows is generally seen as a positive for the US-dollar, because it signals that foreigners are willing to increase their holdings of US-securities, displaying greater confidence in the currency. On the other hand, a TIC deficit is generally interpreted as bearish for the US-dollar, because it means that foreign inflows into the US aren't sufficient enough to fund government borrowing.
The release of the TIC report often sparks a flurry of trading activity in the foreign exchange market, due to speculators seeking to earn a fast profit. However, the initial knee-jerk reaction to the news headlines, can be very misleading, and often isn't long-lasting. For instance, the US-Dollar Index, measured against a basket of six-currencies, defied conventional logic in February, by climbing +2.7% higher, even in the face of a net outflow of $91-billion in the TIC account. (more)
Wednesday, May 20, 2009
The Market's Next S&P Targets
By: CNBC.com
Stocks continue to gently whipsaw Wednesday, but the Vix volatility/fear index is still subsiding.
Art Cashin, UBS Financial Services director of floor operations, offered CNBC his stock-market insights.
In a sports metaphor, Cashin agreed that the bulls have stolen the ball back from the bears. "But now we have to see if they can score with it."
"What you're going to test for is...yesterday's highs, followed by a real resistance." (more)
Stocks continue to gently whipsaw Wednesday, but the Vix volatility/fear index is still subsiding.
Art Cashin, UBS Financial Services director of floor operations, offered CNBC his stock-market insights.
In a sports metaphor, Cashin agreed that the bulls have stolen the ball back from the bears. "But now we have to see if they can score with it."
"What you're going to test for is...yesterday's highs, followed by a real resistance." (more)
MarketTrends: May 20, 2009
Issued by Colin Cieszynski, CFA, CMT, Market Analyst, CMC Markets Canada
North American Indices and Commodities: Broad-Based Commodity Breakout
Energy prices have been leading commodities higher today, with buying momentum accelerating following the release of the weekly US DOE inventories report. Last week, US crude oil inventories fell by 2.1 million bbls when a 0.4 million bbl decrease had been expected, while gasoline inventories fell by 4.3 million bbls, more than the 1.2 million bbl drop expected. This may be viewed as particularly significant with US summer driving season set to kick off this weekend (Memorial Day holiday on Monday).
Earlier this week, US crude broke through $60.00/bbl resistance, successfully tested it as a new support level, and now has broken out to a new high on trend. Next significant resistance hurdle appears at the 200-day moving average near $63.30/bbl.
A number of other commodities have also been posting significant gains today in oil’s wake, suggesting that attitudes toward the health of the global economy continues to improve and that investors may be starting to anticipate an improvement in the demand for resources. For example, wheat has climbed to test $6.00/bushel resistance, corn has broken through $4.25/bushel, and natural gas has been trending toward a test of $4.00/mmbtu. Copper has broken through $2.10/lb once again, but still faces significant resistance in the $2.20-$2.25/lb range.
Precious metals have also been picking up today despite gains in equities and commodities. This suggests that short term fear capital may have already rotated back out into other market areas. It also indicates that investors may now be focusing on the long-term implications of bailouts and stimulus on inflation. Gold has broken through resistance at $935/oz this morning with next resistance near $945-950/oz and $970-975/oz. Meanwhile, silver has broken through $14.25/oz resistance with next resistance near the $14.70/oz level.
Equity markets have also been climbing today, but remain short of the highs set last week. Significant resistance levels that would need to be overcome to signal the start of a new upleg include: 8,600 for the Dow Industrials (US30 CFD), 930 for the S&P 500 (SPX500 CFD), 1,435 for the NASDAQ100 (NDAQ100 CFD), 4,700 for the FTSE 100 (UK100 CFD) and 5,000 for the DAX (German30 CFD). Next significant resistance levels for US markets appear near 8,900 for the Dow, 965 for the S&P, and 1,470 for the NASDAQ.
Canadian markets have been benefiting from improvement in general equity sentiment and commodity price gains. The S&P/TSX Composite has been testing resistance at 10.350 today with next resistance near 10,700, while the S&P/TSX 60 (Toronto60 CFD) has been testing 630 resistance with next resistance near 670.
Note that the minutes from the last Fed meeting are due for release at 2:00pm ET, which may have an impact on afternoon trading.
Canada and US Share Update: Semis, Solar and Steels Lead Market Gains
The Semiconductor sector continues to rally today. Sentiment toward the group has continued to turn positive after Analog Devices (ADI up 14.0%) reported EPS of $0.21 which handily beat the $0.07 street estimate, and posted guidance of $0.17-$0.19 for next quarter, well above the $0.11 street estimate. Other leading advancers in the group include: National Semiconductor (NSM) up 9.1%, Micron (MU) up 7.1% and AMD (AMD) up 7.6%.
Interest in the energy sector also appears to be increasing with US crude oil prices holding above their key $60.00/bbl support/resistance level. In Canada oil and gas producers have been attracting attention led by Iteration (ITX) up 9.4%, Advantage Energy (AVN-u) up 8.7%, and Crew Energy (CR) up 6.8%. In the US, attention appears to be more focused on the alternative energy/solar group, led by JA Solar (JASO) up 16.0%, Yingli Green Energy (YGE) up 9.7%, and First Solar (FSLR) up 5.3%. Coal producers have also been climbing, led by Massey Energy (MEE) up 8.9%, Arch Coal (ACI) up 8.6%, and Consol Energy (CNX) up 6.5%.
Steel producers have also been picking up today, which suggests that investors may be looking at deep cyclical plays for a potential early economic recovery situation. Leading advancers in the group include: AK Steel (AKS) up 8.3%, US Steel (X) up 8,5%, and Steel Dynamics (STLD) up 7.5%.
North American Indices and Commodities: Broad-Based Commodity Breakout
Energy prices have been leading commodities higher today, with buying momentum accelerating following the release of the weekly US DOE inventories report. Last week, US crude oil inventories fell by 2.1 million bbls when a 0.4 million bbl decrease had been expected, while gasoline inventories fell by 4.3 million bbls, more than the 1.2 million bbl drop expected. This may be viewed as particularly significant with US summer driving season set to kick off this weekend (Memorial Day holiday on Monday).
Earlier this week, US crude broke through $60.00/bbl resistance, successfully tested it as a new support level, and now has broken out to a new high on trend. Next significant resistance hurdle appears at the 200-day moving average near $63.30/bbl.
A number of other commodities have also been posting significant gains today in oil’s wake, suggesting that attitudes toward the health of the global economy continues to improve and that investors may be starting to anticipate an improvement in the demand for resources. For example, wheat has climbed to test $6.00/bushel resistance, corn has broken through $4.25/bushel, and natural gas has been trending toward a test of $4.00/mmbtu. Copper has broken through $2.10/lb once again, but still faces significant resistance in the $2.20-$2.25/lb range.
Precious metals have also been picking up today despite gains in equities and commodities. This suggests that short term fear capital may have already rotated back out into other market areas. It also indicates that investors may now be focusing on the long-term implications of bailouts and stimulus on inflation. Gold has broken through resistance at $935/oz this morning with next resistance near $945-950/oz and $970-975/oz. Meanwhile, silver has broken through $14.25/oz resistance with next resistance near the $14.70/oz level.
Equity markets have also been climbing today, but remain short of the highs set last week. Significant resistance levels that would need to be overcome to signal the start of a new upleg include: 8,600 for the Dow Industrials (US30 CFD), 930 for the S&P 500 (SPX500 CFD), 1,435 for the NASDAQ100 (NDAQ100 CFD), 4,700 for the FTSE 100 (UK100 CFD) and 5,000 for the DAX (German30 CFD). Next significant resistance levels for US markets appear near 8,900 for the Dow, 965 for the S&P, and 1,470 for the NASDAQ.
Canadian markets have been benefiting from improvement in general equity sentiment and commodity price gains. The S&P/TSX Composite has been testing resistance at 10.350 today with next resistance near 10,700, while the S&P/TSX 60 (Toronto60 CFD) has been testing 630 resistance with next resistance near 670.
Note that the minutes from the last Fed meeting are due for release at 2:00pm ET, which may have an impact on afternoon trading.
Canada and US Share Update: Semis, Solar and Steels Lead Market Gains
The Semiconductor sector continues to rally today. Sentiment toward the group has continued to turn positive after Analog Devices (ADI up 14.0%) reported EPS of $0.21 which handily beat the $0.07 street estimate, and posted guidance of $0.17-$0.19 for next quarter, well above the $0.11 street estimate. Other leading advancers in the group include: National Semiconductor (NSM) up 9.1%, Micron (MU) up 7.1% and AMD (AMD) up 7.6%.
Interest in the energy sector also appears to be increasing with US crude oil prices holding above their key $60.00/bbl support/resistance level. In Canada oil and gas producers have been attracting attention led by Iteration (ITX) up 9.4%, Advantage Energy (AVN-u) up 8.7%, and Crew Energy (CR) up 6.8%. In the US, attention appears to be more focused on the alternative energy/solar group, led by JA Solar (JASO) up 16.0%, Yingli Green Energy (YGE) up 9.7%, and First Solar (FSLR) up 5.3%. Coal producers have also been climbing, led by Massey Energy (MEE) up 8.9%, Arch Coal (ACI) up 8.6%, and Consol Energy (CNX) up 6.5%.
Steel producers have also been picking up today, which suggests that investors may be looking at deep cyclical plays for a potential early economic recovery situation. Leading advancers in the group include: AK Steel (AKS) up 8.3%, US Steel (X) up 8,5%, and Steel Dynamics (STLD) up 7.5%.
The Truth about Option ARMs,the Eye of the $469 Billion Toxic Mortgage Hurricane
The Truth about Option ARMs, Pick-a-Pay Mortgages, and Alt-A Loans: Looking at Wells Fargo, Bank of America, and JP Morgan. We are in the Eye of the $469 Billion Toxic Mortgage Hurricane and Silence is not Golden.
Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years. This is a big reason why we won’t see a housing bottom in California until 2011 at the earliest. Many of these loans were made to supposedly better qualified borrowers in mid to upper priced areas. These areas will begin to crack like an egg dropped on the floor late in 2009. The Notice of Default tsunami will guarantee this much. (more)
Let me be abundantly clear. We still have a Pay Option ARM and Alt-A mortgage problem. This will hit in full force in 2010 and we are already seeing many mortgage holders having trouble with actual recasts brought on by negative amortization. Yet there is a crew of people saying that Alt-A mortgage products will not bring any trouble because of the low interest rate environment. Unfortunately the low rate misses the bigger issue. Low rates are helping but the problem that we will be seeing is the massive onslaught of recasts, not resets that will be occurring over the next few years. This is a big reason why we won’t see a housing bottom in California until 2011 at the earliest. Many of these loans were made to supposedly better qualified borrowers in mid to upper priced areas. These areas will begin to crack like an egg dropped on the floor late in 2009. The Notice of Default tsunami will guarantee this much. (more)
Tuesday, May 19, 2009
Caught Up in a Sucker's Rally?
www.rufftimes.com
With the S&P now a third higher than it was just 60 days ago, many have turned into stock market cheerleaders, doing jumping jacks and shouting the “irrefutable” news that a new bull market has just been born.
Well…you might want to just hold your horses.
The mere fact that the market is up after so many months of gloomy news is not exactly proof of an economic upswing. It is, in fact, so symptomatic of a recession/depression that the phenomenon has its own name:
The bear market or sucker’s rally.
“The granddaddy of all bear markets, 1929 -1932, had six false alarms with an average gain of percent. And Japan's ongoing bear saw the Nikkei rise by at least a third four times in its first four years with 10 more false dawns since then,” wrote reporter Spencer Jakob in the Financial Times.
“An authority on bear market bottoms, Russell Napier of CLSA, sees a 1974-1976 scenario unfolding followed by an even worse slump. In Anatomy of the Bear, he scanned media coverage around the bottoms of 1921, 1932, 1949 and 1982 and does not see the apathy that characterized those turning points.
“For the great bear market bottoms, you need a society-wide revulsion with equities,’ he said. ‘It just doesn't smell like the big one yet.”
Another sign? Stocks also become very cheap before major bull markets begin. Yet the 2000 bubble never fully deflated and even the recent low did not breach 11 times.
***********************
WHAT TO DO ABOUT IT
FIRST: I agree with this well-reasoned analysis. We will not see a new bull market for several years, but we will see several fake-outs, as we always do during such bear markets. Sometimes my success is measured not by the money you subscribers make, but by the money you didn’t lose. This is one of those times.
Avoid the Dow Jones Industrials, growth mutual funds and most stocks. They will wander around the bottom and drift lower for many years to come. Over the next three years, the big money will be made by a small minority who are willing to go against the Wall Street grain.
SECOND, if you are a true contrarian, you will ignore the stock market, except for a few industry groups, which I have already discussed and will discuss in future newsletters, and you must concentrate on preserving your capital, assuming the dollar will continue to lose value as it has been in slow motion over a hundred years. This will turn into an eventual price explosion in inflation hedges. Invest in bullion, particularly the hold-it-in-your-hands kind. Hide them in a safe place.
With the S&P now a third higher than it was just 60 days ago, many have turned into stock market cheerleaders, doing jumping jacks and shouting the “irrefutable” news that a new bull market has just been born.
Well…you might want to just hold your horses.
The mere fact that the market is up after so many months of gloomy news is not exactly proof of an economic upswing. It is, in fact, so symptomatic of a recession/depression that the phenomenon has its own name:
The bear market or sucker’s rally.
“The granddaddy of all bear markets, 1929 -1932, had six false alarms with an average gain of percent. And Japan's ongoing bear saw the Nikkei rise by at least a third four times in its first four years with 10 more false dawns since then,” wrote reporter Spencer Jakob in the Financial Times.
“An authority on bear market bottoms, Russell Napier of CLSA, sees a 1974-1976 scenario unfolding followed by an even worse slump. In Anatomy of the Bear, he scanned media coverage around the bottoms of 1921, 1932, 1949 and 1982 and does not see the apathy that characterized those turning points.
“For the great bear market bottoms, you need a society-wide revulsion with equities,’ he said. ‘It just doesn't smell like the big one yet.”
Another sign? Stocks also become very cheap before major bull markets begin. Yet the 2000 bubble never fully deflated and even the recent low did not breach 11 times.
***********************
WHAT TO DO ABOUT IT
FIRST: I agree with this well-reasoned analysis. We will not see a new bull market for several years, but we will see several fake-outs, as we always do during such bear markets. Sometimes my success is measured not by the money you subscribers make, but by the money you didn’t lose. This is one of those times.
Avoid the Dow Jones Industrials, growth mutual funds and most stocks. They will wander around the bottom and drift lower for many years to come. Over the next three years, the big money will be made by a small minority who are willing to go against the Wall Street grain.
SECOND, if you are a true contrarian, you will ignore the stock market, except for a few industry groups, which I have already discussed and will discuss in future newsletters, and you must concentrate on preserving your capital, assuming the dollar will continue to lose value as it has been in slow motion over a hundred years. This will turn into an eventual price explosion in inflation hedges. Invest in bullion, particularly the hold-it-in-your-hands kind. Hide them in a safe place.
Forensic Examination of the Gold Carry Trade Is There A Supply Deficit?
by Rob Kirby | May 13, 2009
If you ask the World Gold Council or their “official numbers keeper” - GFMS – they’ll say there is no persistent gold supply deficit. If you ask the folks at GATA – they’ll claim there is an annual 1,000 – 1,500 tonne gold supply deficit.
So who’s telling the truth?
What’s interesting to note in this regard – the World Gold Council and GFMS haven’t always shared the same view regarding gold supply / demand aggregates. Empirically their positions, at times, have been ambiguously at odds with each other and have lacked continuity. Here’s how GATA consultant Frank Veneroso explained the disparity back in 2005;
“As I explained in the Gold Book, gold demand had been understated for years by GFMS, the ‘official’ keeper of the global gold statistics, as has been the flow of official sector gold. Official stocks were falling faster than the GFMS data would suggest. I presented abundant statistical information to make that case. We believe that the trend in the official data since then simply flies in the face of obvious facts and this discredits it further.
People ask us where we think supply and demand are now. Our standard response is that we don’t know, because the data available to us has become ever less reliable. In the old days, the World Gold Council produced a data series on gold demand for most (but not all) of the world. It was based on extensive survey data and it had no reason to be biased. It clearly showed a stronger trend in the growth of gold demand (excluding Western investment) than did the GFMS supply/demand statistics. For us it was an anchor that allowed us to see a growing error in the GFMS data (see the Gold Book). (more)
If you ask the World Gold Council or their “official numbers keeper” - GFMS – they’ll say there is no persistent gold supply deficit. If you ask the folks at GATA – they’ll claim there is an annual 1,000 – 1,500 tonne gold supply deficit.
So who’s telling the truth?
What’s interesting to note in this regard – the World Gold Council and GFMS haven’t always shared the same view regarding gold supply / demand aggregates. Empirically their positions, at times, have been ambiguously at odds with each other and have lacked continuity. Here’s how GATA consultant Frank Veneroso explained the disparity back in 2005;
“As I explained in the Gold Book, gold demand had been understated for years by GFMS, the ‘official’ keeper of the global gold statistics, as has been the flow of official sector gold. Official stocks were falling faster than the GFMS data would suggest. I presented abundant statistical information to make that case. We believe that the trend in the official data since then simply flies in the face of obvious facts and this discredits it further.
People ask us where we think supply and demand are now. Our standard response is that we don’t know, because the data available to us has become ever less reliable. In the old days, the World Gold Council produced a data series on gold demand for most (but not all) of the world. It was based on extensive survey data and it had no reason to be biased. It clearly showed a stronger trend in the growth of gold demand (excluding Western investment) than did the GFMS supply/demand statistics. For us it was an anchor that allowed us to see a growing error in the GFMS data (see the Gold Book). (more)
Hot in recession: Cheaper wine, chocolate, Spam
WASHINGTON – It's not all doom and gloom in the U.S. economy. Some products are bucking the recession and flying off store shelves.
Sales of chocolate and running shoes are up. Wine drinkers haven't stopped sipping; they just seem to be choosing cheaper vintages.
Gold coins are selling like hot cakes. So are gardening seeds. Tanning products are piling up in shopping carts; maybe more people are finding color in a bottle than from sun-worshipping on a faraway beach.
Strong sales of Spam, Dinty Moore stew and chili helped Hormel Foods Corp. post a 6 percent increase in first quarter sales in its grocery products unit.
Consumers have trimmed household budgets and postponed buying cars, major appliances and other big-ticket items. Yet they still are willing to shell out for small indulgences and goods that make life more comfortable at home, where they are spending more time.
Recession shoppers also are drawn to items that make them feel safe, both personally and financially. (more)
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